Weekly Rundown: The Social Contract
I sat down to write this newsletter and was at a loss for words. I am not a political activist, but it would be tone-deaf of me not to acknowledge the riots in Minneapolis, Atlanta, Chicago, Los Angeles, New York and dozens of other cities across America. I woke up this morning to videos of peaceful protesters (including children) being maced, beaten, shot at (even on their own porches), and driven at by police vehicles. And then there are the small business owners, whose store fronts have been looted by violent opportunists, who have used the political upheaval of this protest to their advantage.
So to those who are hurting, I will say this: I hurt with you. I am an immigrant twice over and I know what it is like to grow up in a country where you cannot trust your police, the very people who are there to protect you. And so, I hurt with you.
What we are facing in America today, however, is a systemic issue that will not be cured by violence on either side.
Every democratic society is built on a social contract - an agreement we all implicitly enter into to cooperate with state regulation in return for social benefits. Citizens agree to follow rules, and voice their opinions through peaceful means, in exchange for services such as roads, hospitals, security, education, economic welfare and more. There are those who choose not to participate - they don’t pay taxes, live off the land in remote areas or immigrate elsewhere. But for most of us, we have decided that the benefits of being part of an organized society outweigh the sacrifices.
In 2020, our government fell short on their obligations in three key areas.
Police brutality
Protests have erupted nationwide after the unlawful murder of George Floyd by a police officer. We count on our government and our police to protect us. To be on the side of the innocent. But what happens when communities no longer trust law enforcement and start self-policing? Do we still agree to a social contract with a state whose law enforcement we no longer trust?
Healthcare
I don’t like writing about the Covid pandemic, but it is worth pointing out some numbers. The U.S. has 1.8 million cases, 30% of all cases globally, despite only having 4.2% of the world’s population. It is very likely that some countries are underreporting their cases, but the statistic is still staggering. The pandemic exposed what we knew all along - American healthcare is broken. Healthcare should be a basic human right and this is the only developed country in the world that does not offer public healthcare to its citizens and instead makes it into an overpriced capitalistic machine not accessible to the majority. We are the only Western nation that doesn't include healthcare in our social contract.
Economy
In 2020, the government ‘printed’ $2.9 trillion in new U.S. Dollars (13% of our GDP and counting); recorded 42 million unemployed and; most recently, escalated trade tensions with China, putting millions of American businesses that depend on the cost-effective manufacturing power of China at risk. Just think of the 90%+ of goods you buy on Amazon - all made in China.
How exactly this will play out is yet to be seen, but the lasting effects could be dangerous for everyone, regardless of race, political leaning or socio-economic status. As we discussed in the previous issue of the Weekly Rundown, the only thing keeping our economy from collapsing right now is our ability to print more U.S. Dollars and the continued global demand for those U.S. Dollars. Faith in the American economy and its currency will be undermined if the American government continues to shirk its obligations its people. And like pulling on a loose thread, the result could be the unraveling of the entire global economy.
This Week By The Numbers
Last week, investors saw green across the board. As protests erupted over the weekend, however, I caution investors to look out for potential negative effects and volatility caused by continued political unrest.
Top Stories of the Week
US consumer spending plunged the most ever last month as savings spiked to a record high
US consumer spending slumped by 13.6% in April, the largest drop on record, the Commerce Department reported Friday. Economists surveyed by Bloomberg had expected a 12.8% decline. Meanwhile, the personal savings rate surged to a record 33%, up from 12.7% in March, as people held onto their cash. Incomes also increased by 10.5%, reflecting the $3 trillion worth of government social benefits paid out during the month. Read Full Story.
Trump announces unprecedented action against China. US-China relations are in full crisis.
Trump launched an attack on Beijing on Friday, naming misdeeds that range from espionage to the violation of Hong Kong's freedoms, and announced a slew of retaliatory measures that will plunge U.S.-China relations deeper into crisis. Trump decried the way Beijing has "raided our factories" and "gutted" the American industry, casting Beijing as a central foil he will run against in the remaining months of his re-election campaign. The U.S. will pull out of the World Health Organization, even as the global coronavirus pandemic continues to claim lives, claiming that China has "total control" over the organization of 194 member states. Shortly after Trump's remarks, the White House issued a presidential proclamation suspending U.S. entry for graduate and postgraduate students and researchers from China. The U.S. imported $452 billion worth of goods from China in 2019, and China could strike back in ways that would hurt American businesses. Read Full Story.
SpaceX makes history with successful first human space launch
SpaceX made history today, sending NASA astronauts Doug Hurley and Bob Behnken to space aboard its Crew Dragon spacecraft using a Falcon 9 rocket. The launch, titled ‘Demo-2’, is for the final demonstration mission in the human rating process of SpaceX’s Crew Dragon and Falcon 9, meaning that once this mission is complete, the launch vehicle will finally be certified for operational use for regular transportation of people to space. This was the second attempt, after an initial launch test last Wednesday was scrubbed due to weather conditions. Read Full Story.
Trump signs executive order targeting social media companies
On Tuesday, Twitter applied a fact-check to two of Trump's tweets, including one that claimed, without evidence, that mail-in ballots would lead to widespread voter fraud. Trump immediately shot back, accusing the social media giant of censorship. The executive order tests the boundaries of the White House's authority, targeting a law known as the Communications Decency Act. Section 230 of the legislation provides broad immunity to websites that curate and moderate their own platforms, and has been described by legal experts as "the 26 words that created the internet." In a long-shot legal bid, the executive order seeks to curtail the power of large social media platforms by reinterpreting a critical 1996 law that was intended to shield websites and tech companies from lawsuits. Legal challenges to the order are expected. Read Full Story.
Goldman Sachs slams Bitcoin and Gold on investor call
Goldman attacked Bitcoin’s standing as an asset class. The reasons include Bitcoin’s inherent lack of cash flow, unlike bonds, and its inability to generate earnings through exposure to global economic growth, according to the presentation. Goldman also noted Bitcoin’s volatility, citing the recent drop to 12-month lows in early March. Twitter erupted in defense of Bitcoin, calling Goldman’s claims ‘cookie cutter’ and outdated as the price of Bitcoin continued to rise. Bitcoin’s price continues to be driven by a desire for a medium of exchange independent of government and Wall Street manipulation and corruption. Full slideshow available here.
[To keep this newsletter brief, I will be sending out a separate analysis on Bitcoin next week].
Book of the Week: The Soul of an Entrepreneur
This week I picked up the Soul of an Entrepreneur. Written by friend and accomplished author David Sax, the book discusses the myths of entrepreneurship, and tells the essential stories of real business owners in the modern economy.
“The thing that we tend to forget when we study entrepreneurs only as engines of job creation, profits or other quantifiable markers of economic growth is that every entrepreneur is a person, with hopes, dreams and feelings. Their businesses are intricately tied into the fabric of their communities in a way that numbers simply can’t capture.”
The book has garnered particular attention and relevance as so many start-ups and small businesses are struggling during the pandemic. Order your copy here.
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Thank you for reading the latest edition of the Weekly Rundown. As always, reach out with feedback or ideas for the next edition.
Best,
Tatiana Koffman —> tatiana@tatianakoffman.com
Disclaimer: This email does not contain financial advice and was created solely for informational purposes.